A sound, up-to-date estate plan is
important for virtually every adult, but it is absolutely essential if you have
loved ones with special needs. Chances
are, there is or will be someone in your family who will need long-term help
managing finances and/or personal care.
Many individuals with special needs will be financially dependent on
others for their entire lives. That
could be as long as 70 years for a child whose life expectancy is not affected
by the condition creating the need for special care. Whether for a child, a sibling, or other
loved one, it is critical to have a plan in place that protects their long-term
financial well-being.

So where do you start? First, open the dialogue with appropriate
family members to identify what you’re trying to accomplish. Then extend the conversation to professionals
such as financial advisors, attorneys, and fiduciaries to figure out how you
can reach those goals. Consult with medical
professionals if needed to determine what care will be necessary for the
special needs individual and how it will be provided. This will help you structure the ultimate
distribution of your estate. Does it
make sense to leave more money to a special needs beneficiary? Or less because other sources of income will
be available, such as Social Security?
Or should the inheritance be as equal as possible, especially among your
children?

Next, tackle the question of how these
funds should be left for the special needs beneficiary. A direct inheritance is typically unwise. Many people with special needs find it
difficult to manage money effectively, and an outright gift of assets may inadvertently
disqualify the individual from eligibility for certain needs-based government benefits. You may also be tempted to leave extra assets
in the hands of another individual to care for the special needs individual. However, this option also has its share of
pitfalls, as the individual left “in charge” may face financial challenges (such
as loss of job, bankruptcy, divorce, health crisis, etc.) that jeopardize even
the best-laid plans.

If your family is among the nearly 30% of
American families with at least one member with special needs, consider the
following strategies:

1. ABLE Accounts. Congress passed the
Achieving a Better Life Experience Act in late 2014, creating a tax-advantaged
account for people with disabilities.
ABLE accounts work similarly to a 529 account for education; both are
administered at the state level with varying plans (and fees) per state. ABLE account funds grow and can be spent
tax-free on qualified expenses such as medical treatment, transportation,
housing, education and assistive technology.
To qualify, the beneficiary of the ABLE account must meet certain
criteria evidencing a severe disability; perhaps most importantly, the
individual must have become blind or disabled before age 26.

2. Special Needs Trust. You can set aside funds in a SNT to
specifically provide for the care of an individual with special needs. Trusts set up specifically for special needs
dependents can help ensure that those funds do not jeopardize eligibility for needs-based
benefits at the federal, state, and/or local level. By their nature, SNTs limit how the trust
funds can be used. If eligibility for
government benefits is not an issue, you may opt for a general discretionary
trust which allows for greater flexibility and imposes fewer limits on
disbursements.

Not all SNTs are created equal. “First-Party” SNTs may be created by the special needs dependent who comes into money via an inheritance, a lawsuit, or other unexpected means so that the “windfall” does not disqualify the dependent from government benefits. However, any funds remaining in First-Party SNTs are subject to recovery by Medi-Cal after the beneficiary’s death if he or she received benefits during his or her lifetime.

You can establish a “Third-Party” SNT for a
special needs dependent during your lifetime or upon your death through a will
or trust. The trustee has discretion to
pay for necessities and services not covered by the beneficiary’s own resources
and government benefits without jeopardizing such benefits, as long as
disbursements are not made directly to the beneficiary. When the beneficiary dies, any remaining SNT
assets can be distributed according to your wishes.

Lastly, you can join a “Pooled” SNT to set
aside money for a special needs dependent. These trusts are set up and run by
nonprofit organizations who combine and invest the participants’ assets
together and distribute funds to the disabled beneficiaries in proportion to
their share of the total amount. The
pros and cons of a pooled SNT should be weighed carefully by each family, as
the advantages of joining an established trust may be outweighed by the
difficulty in moving assets out of such trusts, even if the trustee is not
doing a good job in managing the trust assets.
Once the beneficiary dies, any remaining funds will permanently remain
in the Pooled SNT to help the other special needs beneficiaries.

No matter which option(s) you choose for
your loved one with special needs, remember to review your plan every 3 – 5
years (or whenever you have a major life change) with your estate planning
attorney and update it as needed. Then
you can be confident that your loved ones will be cared for even when you are
no longer here to look after them yourself.
Contact us at CohenDurrett
LLP to get started on a customized plan or update on existing plan.

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Susan’s business law practice focuses on formation and compliance, succession planning, sales and acquisitions, and other transactional matters. Susan has formed and counseled business entities of varying sizes and purposes, from both closely‐held family enterprises to 501(c)(3) nonprofit public benefit organizations to project‐specific vehicles for asset protection purposes. With experienced and timely counsel, Susan guides her clients through the ups and downs of operating a business to keep the clients’ focus and efforts on growing the business. Read more about Susan here. Contact Susan at [email protected]